Scenarios for Global Natural Gas Markets to 2050

Executive Summary

In a recent report, “US LNG Exports: Truth and Consequence Revisited,” several issues were raised in the interest of highlighting what previous studies commissioned by the U.S. Department of Energy (DOE) have found regarding U.S. liquefied natural gas (LNG) exports.[1] That report applies some basic international trade theory, options theory, and other economic principles to outline how markets have developed and where they may be going. That report also draws on 18 years of research that has demonstrated remarkable resilience and remains relevant today.

The evolution of the global LNG industry and the role U.S. natural gas has played over the last two decades has been nothing short of astounding, and the implications are still unfolding. Of course, any study of LNG is an exercise in international trade economics, and understanding how different scenarios might unfold is critical. This requires looking forward, rather than looking backward, which can be complex because outlooks are conditional on the assumptions made. When this is properly understood, scenario-based outlooks can be powerful tools for a deeper analysis of the risks and opportunities associated with various market dynamics.

This report examines several scenarios to address the following questions:

• What are the implications of different levels of U.S. LNG exports for the domestic and international markets?
• How important are oil market activities for U.S. gas market balance, and what does that mean for the future of U.S. LNG exports?
• What are the implications of higher or lower natural gas demand — due to, for instance, significant expansion of demand for power generation or displacement of demand by new technologies, respectively — for U.S. and global gas markets?

The answers to these questions have bearing for the value of U.S. LNG exports. Among the key findings are:

• Markets trigger responses on multiple margins. Understanding the multifaceted nature of market responses is paramount for commercial strategy and policy.
• Prices converge across Europe and Asia indicating that the global LNG market becomes increasingly fungible, which results in the elimination of long-run arbitrage opportunities between Europe and Asia.
• Altering the pace and scale of U.S. LNG exports alters the profitability of competing projects. There is significant first-mover advantage in the global gas market, so if a project is delayed in one part of the world, a competing project elsewhere may look more favorable. All else equal, the delayed project would then wait even longer to find a new window to earn a suitable rate of return. This plays out across scenarios, especially between Russia and the U.S.
• U.S. LNG exports are sensitive to changing market realities. Export authorizations are important, but they do not dictate outcomes; commercial and financial viability of the export project does.
• U.S. LNG exports have implications for international market balance, and hence economic and energy security. The most heavily impacted exporting country across multiple scenarios is Russia, which has significant geopolitical and energy security implications. U.S. LNG provides a real option for buyers in Europe and Asia to enhance supply portfolio diversification and energy security.
• Greater U.S. LNG exports drive greater LNG imports in both Asia and Europe. Hence, U.S. LNG exports carry environmental implications, particularly for coal-rich Asian economies. In a market where value is placed on carbon reduction, natural gas is increasingly attractive relative to coal for dispatchable power generation. The absence of U.S. LNG prevents this value from being fully realized.
• Canada plays a vital role for U.S. gas market balance. The deep interconnection of these North American neighbors allows the robust natural gas resources in Canada to serve as a backstop for U.S. supplies. This point is often overlooked in analysis of the impact of U.S. LNG exports on domestic gas markets.
• All scenarios highlight the importance of unencumbered investment along supply chains. The ability for actors to respond quickly to different stimuli is central to fungibility. When constraints reduce access to resources, for example, prices are higher, and trade is reduced, which carries geopolitical implications. This is often framed in the context of permitting and access, but it is more generally apt in the context of minimizing policy uncertainty.
• New technologies that can substitute for natural gas will reduce demand, but cost matters. The implications for exporting regions and importing regions are different, as higher-priced importing regions should adopt the technology more aggressively, leading to price reductions along the natural gas supply chain all the way back to the wellhead and delaying adoption in exporting regions.
• Finally, scenario analysis allows one to evaluate the simplest of changes to recognize the multiple margins of market response. The scenario analysis conducted in this report highlights the option value of U.S. LNG exports for macroeconomics, geopolitics, and the environment. Markets will ultimately determine the extent to which that value is present, if they are allowed to do so.

View the full report (PDF).

Notes

^[1] Kenneth B. Medlock III, “US LNG Exports: Truth and Consequence Revisited,” Rice University’s Baker Institute for Public Policy, February 17, 2025, https://doi.org/10.25613/H0B7-6054.

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